Group accounting including statements of cash flows: formula sheet

Key formulas

Control (IFRS 10)

Control = power over investee + exposure to variable returns + ability to use power to affect returns

All three must be present. Reassess if facts and circumstances change.

Goodwill (full method)

Goodwill = consideration transferred + NCI at fair value − fair value of identifiable net assets at acquisition

NCI at acquisition is its fair value, usually a share price or valuation given in the question.

Goodwill (partial method)

Goodwill = consideration transferred + (NCI % × fair value of identifiable net assets) − fair value of identifiable net assets

Goodwill then relates only to the parent's share.

Fair value of net assets at acquisition

Net assets = share capital + reserves at acquisition + fair value adjustments

Include any fair value adjustment on assets, liabilities and identifiable intangibles. Note any related deferred tax if the question gives a rate.

NCI at reporting date

NCI = NCI at acquisition + NCI % × post-acquisition profit of subsidiary (after fair value depreciation and unrealised profit on upstream sales) − NCI share of any goodwill impairment (full method only)

Use the subsidiary's adjusted post-acquisition profit.

Group retained earnings

Parent's retained earnings + parent % × subsidiary's post-acquisition retained earnings (adjusted) − parent's share of goodwill impairment − downstream unrealised profit

Adjust the subsidiary's reserves before taking the parent's share.

Unrealised profit in inventory

URP = inventory still held × profit margin on selling price (or mark-up ÷ (100 + mark-up) if on cost)

Check whether the profit is given as margin or mark-up before you calculate.

Group line item

Parent + Subsidiary (time-apportioned from acquisition) − intragroup items ± consolidation adjustments

Apply to revenue, cost of sales and every other expense line.

Intragroup trading

Deduct intragroup sales from revenue AND from cost of sales (same amount)

This has no effect on profit. Only unrealised profit changes profit.

Unrealised profit in closing inventory

URP = intragroup goods still held × profit margin (margin on sales) or × mark-up ÷ (100 + mark-up)

Add URP to cost of sales. Check whether the question gives margin or mark-up.

Fair value depreciation

Extra depreciation = (fair value − carrying amount) ÷ remaining useful life, for the time held

Charge it to the subsidiary's results. NCI shares it.

Profit attributable to NCI

NCI % × (subsidiary profit after tax, adjusted for fair value depreciation, URP if subsidiary sold, and time-apportioned) − (NCI % of goodwill impairment under full goodwill)

Use the same approach for total comprehensive income by including the subsidiary's OCI.

Profit attributable to owners

Group profit for the year − NCI share

Owners' share is the balancing figure.

Intragroup dividend

Remove parent's dividend income from the subsidiary = parent % × dividend paid

The NCI part of the dividend never appears in the parent's profit or loss, so there is nothing to remove. It is shown in the statement of changes in equity as a distribution to NCI.

Significant influence presumption

Holding ≥ 20% of votes → significant influence presumed; < 20% → not presumed

Both are rebuttable. Look for board seats, policy participation and other indicators in the scenario.

Carrying amount of associate at year end

Cost + share of post-acquisition profit (and OCI) − dividends received − impairment losses

Share of profit is after tax. Use the profit of the associate for the period since acquisition, time-apportioned if acquired part-way through the year.

Unrealised profit: associate sells to investor (upstream)

Group share of unrealised profit = Unrealised profit in closing inventory × group % ; deduct from share of associate's profit and from inventory

Do not eliminate the full profit. Only the investor's share. The inventory is in the investor's own books, so the credit reduces group inventory. The debit is made within the share of associate's profit.

Unrealised profit: investor sells to associate (downstream)

Unrealised profit in closing inventory × group % ; deduct from the share of associate's profit and from the investment

The adjustment is shown within the share of associate's results line, so the equity-accounted result falls. The credit reduces the carrying amount of the investment.

Joint operation accounting

Recognise own assets, liabilities, revenue and expenses, plus share of jointly held items

Applies to a joint operator. No equity method.

Joint venture accounting

Equity method under IAS 28

Applies when the parties have rights to net assets.

Impairment of investment

Only if there is objective evidence of impairment (IAS 28): Impairment = carrying amount − recoverable amount (higher of fair value less costs of disposal and value in use)

The test is not routine. It applies only when there is objective evidence of impairment, which means a loss event that has an impact on the investment's future cash flows, not just any indicator. Once triggered, measure it under IAS 36. Test the whole carrying amount as a single asset. Goodwill within it is not tested separately.

Goodwill in a step acquisition

Goodwill = consideration for new stake + fair value of previously held interest + NCI − fair value of net assets at acquisition date

All measured at the date control is gained. NCI is at fair value or proportionate share of net assets, as the question states.

Gain on remeasuring previous stake

Gain or loss = fair value of old stake at acquisition date − carrying amount of old stake

For an associate, or an investment measured at FVPL, the gain or loss goes to group profit or loss. For an associate, the carrying amount includes share of post-acquisition profits under the equity method. Any share of the associate's OCI that would be reclassified to profit or loss on disposal is also recycled into the gain or loss on the old stake. For an equity investment designated at FVOCI under IFRS 9, the remeasurement to fair value before the acquisition is recognised in OCI, not profit or loss. The old OCI balance is not recycled, though you may move it within equity.

Change in ownership without loss of control

Adjustment to parent equity = consideration paid or received − change in NCI carrying amount

No profit or loss effect and no change to goodwill. Shown in the statement of changes in equity.

NCI change on a sale of shares (control kept)

Increase in NCI = (net assets at disposal date + unimpaired goodwill attributable to NCI, only if the full goodwill method was used) × % of shares sold

Include goodwill attributable to NCI only if NCI was measured at fair value (full goodwill method). If NCI was measured at proportionate share of net assets, use net assets only.

Group gain or loss on disposal with loss of control

Gain or loss = proceeds + fair value of retained interest − (net assets of subsidiary at disposal date + unimpaired goodwill − carrying amount of NCI)

Net assets and goodwill are as in the consolidated statements at the disposal date. Add any amounts reclassified from OCI where required.

Gain or loss in the parent's own books

Parent's gain or loss = proceeds − carrying amount of the investment sold

This is the individual entity figure. It differs from the group figure and tax is usually based on it.

Translation rates (functional to presentation currency)

Assets and liabilities: closing rate | Income and expenses: rate at transaction date (average rate if a fair approximation) | Equity: historical rates

Pre-acquisition equity is at the acquisition-date rate. Post-acquisition reserves are the translated profits of past years.

Using the rates

If the rate is quoted as foreign currency per $1, then $ amount = foreign amount ÷ rate

Check which way the rate is quoted before you start. Dividing by the wrong rate is a common slip.

Exchange difference on net assets

Exchange difference = closing net assets at closing rate − (opening net assets at opening rate + profit for the year at average rate − dividends at the rate on the dividend date)

Use the same logic for any movement in net assets. It is a balancing figure that goes to OCI.

Goodwill of a foreign subsidiary

Goodwill (functional currency) = consideration + NCI − fair value of net assets at acquisition; carry at closing rate

Exchange difference on goodwill = closing goodwill at closing rate − goodwill at acquisition rate (less any impairment, translated at the average rate).

Sharing the exchange difference

NCI share = NCI % × exchange difference on net assets (plus a share of goodwill difference only if NCI includes goodwill)

The rest goes to the parent's foreign exchange reserve.

Net investment in a foreign operation

Monetary item with no planned or likely settlement is part of the net investment: exchange difference in the individual entity's profit or loss → OCI in the consolidated statements

Reclassified to profit or loss on disposal of the foreign operation.

Effective interest (chain)

Effective interest in T = P% in S × S% in T

Multiply down the chain. Use this for the parent's share of T's profit and net assets.

Effective interest (D-shaped)

Effective interest in T = P direct % in T + (P% in S × S% in T)

Add the direct holding to the indirect holding.

NCI percentage

NCI % in T = 100% − effective interest of P in T

This is the share of T's profit and net assets not attributable to the parent's owners.

Control test

Control through S if P controls S and S controls T. In a D-shape, votes = P direct % + S % in T

Test control on voting rights and the other IFRS 10 power factors, not on effective interest. Votes held by a controlled subsidiary are added to P's direct votes. A low effective interest does not stop full consolidation.

NCI at proportionate share

NCI in net assets = NCI % × T net assets at reporting date (proportionate method)

Under the fair value method, add the NCI share of post-acquisition change to NCI's fair value at acquisition.

Goodwill (full structure)

Goodwill = consideration + NCI at acquisition − fair value of net assets at acquisition

Do it for S and T separately. In a chain, the cost of T in S's books is part of S's investment, not an extra cost to P. If S held T before P bought S, measure goodwill on T and T's pre-acquisition reserves at the date P acquired S. NCI in T at that date is based on P's effective interest, so NCI is 100% minus effective interest.

Associate in a mixed group

Subsidiary's share of associate profit = S% in associate × associate profit. Parent's share = effective interest × associate profit

Used when a subsidiary holds an associate. The subsidiary's share is included in S's results and consolidated at 100%. The NCI in S takes its share of it, and the balance belongs to the parent's owners.

Dividends paid to NCI

Dividends to NCI = Opening NCI + NCI share of profit + NCI share of OCI + NCI arising on acquisition + NCI recognised on selling shares to NCI (no loss of control) − NCI derecognised on buying shares from NCI (no change of control) − NCI removed on disposal − Closing NCI

Show as a financing outflow, a common presentation, or as operating if that is the stated policy. Follow the policy in the question. The cash paid or received for shares bought from or sold to NCI is a separate financing flow, not part of the dividend.

Dividends received from associate

Dividends received = Opening investment + Share of associate profit (+ share of OCI) − Closing investment

Deduct the share of profit in operating activities. Show the dividend received in investing activities (or operating, if policy says so).

Acquisition of subsidiary

Net outflow = Cash consideration paid − Cash and cash equivalents acquired

Investing activity. Exclude shares issued. Deferred or contingent consideration is not cash until paid.

Disposal of subsidiary

Net inflow = Cash proceeds − Cash and cash equivalents disposed of

Investing activity. If the subsidiary had an overdraft, the net inflow is higher than the proceeds.

Working capital movement with acquisitions

Movement from trading = Closing balance − Opening balance − Balance acquired + Balance disposed of

Apply this to each balance separately: inventory, receivables and payables. A subsidiary acquired adds its balance to the closing figure, so subtract it. A subsidiary disposed of removes its balance from the closing figure, so add it back. An increase in an asset is a cash outflow. An increase in a liability is a cash inflow.

Tax paid

Tax paid = Opening tax liability (current and deferred) + Charge for the year + Tax liabilities acquired with a subsidiary − Tax liabilities disposed of with a subsidiary − Closing tax liability (current and deferred)

Rebuild the liability account for current and deferred tax together. Include the charge from profit or loss and any tax in OCI. Balances acquired or disposed of did not arise from the group's own payments.

Associate profit adjustment

Operating reconciliation: deduct share of profit of associate

The share of associate profit is included in profit before tax, so it must be deducted in the operating reconciliation. Only the dividend received is shown as cash.

Equity transactions with NCI

Buying or selling shares in a subsidiary without gaining or losing control = financing activity

Under IFRS 10 these are equity transactions, so the cash flow is financing.

Foreign exchange

Foreign subsidiary cash flows are translated at the rates on the dates of the flows (an average rate is allowed if a reasonable approximation). The effect of exchange rate changes on cash held is a separate reconciling item.

It is not an operating, investing or financing cash flow.

Control (IFRS 10)

Control = power over investee + exposure to variable returns + ability to use power to affect returns

All three elements must be present. Reassess if facts change.

Investment entity definition

Investment entity = obtains funds for investment management services + business purpose is returns from capital appreciation and/or investment income + measures performance on fair value basis

Typical characteristics are guidance, not a strict checklist. Its subsidiaries are held at FVTPL and not consolidated.

Exception to the exception

A non-investment-entity parent consolidates all subsidiaries, including those held via an investment entity subsidiary

An investment entity still consolidates a subsidiary that provides services related to its investment activities.

Potential voting rights

Include only if substantive: holder has the practical ability to exercise them

Consider exercise price, timing, financial barriers and whether the rights are currently exercisable.

Related party disclosure (IAS 24)

Disclose: relationship, transactions, outstanding balances (including commitments) and key management personnel compensation

Disclose parent-subsidiary relationships even if no transactions took place.

Quick revision

• Control under IFRS 10 needs power, exposure to variable returns, and the ability to use power to affect returns.
• Goodwill = consideration + NCI + previously held interest (all at fair value) − net identifiable assets at fair value.
• NCI can be measured at fair value or at its proportionate share of net assets, which affects goodwill.
• Remove intragroup balances and trading, and eliminate unrealised profit in inventory from the seller's profit.
• Acquisition-related costs are expensed under IFRS 3, not added to goodwill.
• Associates are accounted for under the equity method, with the investor's share of profit and OCI, not line by line.
• A step acquisition gaining control remeasures the previously held interest to fair value, with the gain in profit or loss.
• A change in ownership that keeps control is an equity transaction. No goodwill or gain or loss in profit or loss.
• Losing control means derecognising net assets, goodwill and NCI, and remeasuring any retained interest to fair value.
• IAS 21 translation: assets and liabilities at closing rate, income and expenses at average or transaction rate, with differences in OCI.
• In consolidated cash flows, deduct dividends paid to NCI and show acquisitions or disposals net of cash held.
• Ethics answers need the issue, the principle at risk, and a recommended action.

Common mistakes

• Using the subsidiary's book values instead of fair values at acquisition when calculating goodwill. Fix: Always add a fair value adjustment line to the net assets table. Read the question for any asset worth more or less than its carrying amount.
• Taking only the parent's percentage of the subsidiary's assets and liabilities. Fix: Add 100% of each line for a subsidiary. Show the outside share in NCI.
• Including the subsidiary's full-year results in a mid-year acquisition. Fix: Always write the fraction of the year owned first. Apply it to every subsidiary line, including OCI.
• Removing intragroup sales from revenue but not the same amount from cost of sales. Fix: Remove the full intragroup amount from both lines. Add unrealised profit separately to cost of sales.
• Adding the associate's assets and liabilities line by line into the group accounts. Fix: Remember the equity method gives a single line in each statement. Subsidiaries are consolidated line by line, and a joint operator recognises its own share of items line by line.
• Treating dividends from the associate as income in group profit or loss. Fix: In the group accounts, remove the dividend income and deduct the dividend from the investment instead. The share of profit is the income.
• Recognising a gain or loss in profit or loss when the parent sells shares but keeps control. Fix: Ask whether control is lost. If not, it is an equity transaction between owners and goes to parent equity.
• Adding the cost of the old stake into goodwill instead of its fair value. Fix: Remeasure the old stake to fair value at the date control is gained. Use that fair value in goodwill and post the difference to profit or loss.
• Treating the translation difference as a gain or loss in profit or loss. Fix: Translation differences on a foreign operation go to OCI and equity. Only the retranslation of an entity's own foreign currency monetary items goes to profit or loss.
• Translating all of the equity at the closing rate. Fix: Equity goes at historical rates. The exchange difference is the balancing figure and sits in its own reserve.

Exam tips

• Read the question for the NCI measurement basis and the fair value information before you start. Missing either costs several marks.
• Show every working with a clear heading. Even when the final figure is wrong, markers can give credit for correct method.
• Where control is unclear, say which of the three IFRS 10 elements is present or missing and use the facts from the scenario. Do not just quote the definition.
• Keep a short list of the usual adjustments: fair value, extra depreciation, intragroup balances, unrealised profit, goodwill impairment. Tick them off before you build the final statement.
• The reporting and ethics question may ask you to explain the effect of a treatment on the group's figures. Practise a sentence or two on why fair value is used and why unrealised profit is removed.
• Write the fraction of the year owned at the top of your answer. Clear workings help you earn credit for correct method even if a later number is wrong.
• Show a separate NCI working. Marks are given for the method, so label each adjustment.
• Read whether the question gives mark-up or margin before computing unrealised profit. Underline it in the question.